Keystone oil pipeline seen raising gas prices in Midwest

HOUSTON — TransCanada’s Keystone XL oil pipeline, a project that backers including Republican presidential candidate Rick Santorum say will create cheaper U.S. gasoline, instead risks raising prices as much as 20 cents a gallon in the Midwest, Great Plains and Rocky Mountains.

The line would create a new way to carry Canadian imports outside the Midwest and reduce an oil surplus that’s depressing prices in the central United States. Spot gasoline was 55 cents cheaper in Chicago than in New York on June 1, the second-highest ever. Nationwide, retail gasoline set its highest February average at $3.55 a gallon, data compiled by Bloomberg show.

The purpose of the $7.6 billion Keystone is to move 830,000 barrels of oil a day from landlocked Alberta to the Texas Gulf Coast, obtaining new customers and a higher price for heavy Canadian crude, Canadian regulators said in a 2010 report. The oil sold for $23.38 less per barrel in 2011 compared with heavy grades of Mexican crude, according to data compiled by Bloomberg.

“The Canadian plan was to use their market power to raise prices in the United States and get more money from consumers,” Philip Verleger, founder of Colorado-based energy consulting firm PK Verleger, said. Prices may gain 10 to 20 cents in central states, he said.

Producers including Exxon Mobil, Suncor Energy and Cenovus Energy may reap as much as $4 billion more in annual revenue if prices rise as expected following the construction of the 1,661-mile (2,673-kilometer) Keystone XL conduit, the 2010 report says.

Such a change would erase the cost advantage for refiners such as Marathon Petroleum and HollyFrontier, whose Midwest plants profited on cheaper oil supply.

The Keystone pipeline has generated a political debate before the U.S. November presidential election.

Republicans including presidential candidates Santorum, Mitt Romney and Newt Gingrich have criticized President Obama’s Jan. 18 rejection of Keystone XL after Nebraskans raised concerns about the pipeline polluting their groundwater.

The three candidates and House Speaker John Boehner have said that approving Keystone, eliminating environmental regulations of hydraulic fracturing, known as fracking, and opening new areas for drilling would lower the cost of gasoline for American consumers.

Former President Bill Clinton backed construction of Keystone in comments Wednesday at a Washington-area energy conference. As long as the pipeline avoids environmentally sensitive land, “the extra cost of running it is infinitesimal compared to the revenues” the pipeline could produce, he said.